NEW DELHI, Oct 25 (Reuters) - Employees of India's grounded
Kingfisher Airlines Ltd, unpaid since March, agreed on
Thursday to return to work although the debt-strapped carrier
must still convince the aviation regulator to reinstate its
licence.

The deal appears to avert potentially embarrassing protests
by disgruntled staff at this weekend's Formula One auto race
outside New Delhi, where Kingfisher Chairman Vijay Mallya's
Force India team will compete.

Kingfisher, once India's second-largest airline, has not
flown since the start of October after an employee protest
turned violent. On Saturday, India's Directorate General of
Civil Aviation (DGCA) suspended its licence after Kingfisher
failed to address its concerns over safety.

"All employees have agreed to resume duty right now. They
are on duty as we speak ... We are all in this together and
looking forward to getting the airline going in the next few
weeks," CEO Sanjay Aggarwal told reporters at the Delhi airport
after meeting staff members.

He did not give further details and it was not immediately
clear how the airline would fund salary payments.

"We will now finalise and present our resumption plan to the
DGCA and hope to get their concurrence soon," the airline said
in a statement.

Kingfisher has never made a profit since its launch in 2005
and has debt of nearly $2.5 billion, according to an estimate by
the Centre for Asia Pacific Aviation. The consultancy has said
it would cost at last $1 billion to turn around Kingfisher,
which has failed in efforts thus far to bring in new capital.

S.C. Mishra, who represents Kingfisher engineers based in
Delhi, said the airline had agreed to pay March salaries
immediately, April salaries by Oct. 31, May salaries by the
Diwali holiday on Nov. 13, and June salaries between Dec. 20 and
Dec. 31, after which payment would be made monthly.

The remaining three- to four-month lag in salary payments
would be addressed "after the company regains financial health
and gets recapitalised," Mishra told reporters.

He said employees will not hold demonstrations.

Shares in Kingfisher closed up 4.83 percent, effectively at
their 5 percent daily limit, after falling by a similar amount
in each of the four previous sessions.

Kingfisher has been scrambling to find investors to bring in
fresh capital, and had lobbied for a recent Indian rule change
that allows foreign carriers to buy up to 49 percent of an
Indian airline. However, no carrier has publicly expressed
interest in taking a stake.

Mallya's liquor business, United Spirits Ltd, is
in talks to sell a stake to UK drinks giant Diageo Ltd,
which could potential free up funds for him to invest in
Kingfisher.

"All Kingfisher team members back at work and fully
supportive. I sincerely thank all of them for their faith and
continuing commitment," Mallya, known as the "King of Good
Times" for his flashy lifestyle, said on Twitter.

GROUNDED

The country's civil aviation ministry said meeting payroll
commitments was not Kingfisher's only challenge.

"The salary is a big issue and the employees should be paid.
But the larger issue than that is their fiscal assurance to the
DGCA," Ajit Singh, India's civil aviation minister, told the ET
Now TV channel earlier on Thursday.

"They have a lot of outstanding (debts) to the airports
authority, to oil companies, to the leasing companies. So it's
not just a question of salary ... To allow them to fly again,
DGCA is to be satisfied on many more things," Singh said.

DGCA officials were not immediately available for comment.

Even before it stopped operations, Kingfisher had grounded
most of its fleet and defaulted on payments to banks, airports,
leasing companies and others but was still permitted to continue
flying.

That prompted criticism from many in India that authorities
were going easy on Mallya, who is a member of parliament and one
of India's highest-profile businessmen.

Most of Kingfisher's lenders are state banks, which rarely
force corporate liquidations.
(Additional reporting by Kaustubh Kulkarni in MUMBAI; Writing
by Tony Munroe; Editing by Daniel Magnowski and Sophie Hares)